FINANCIAL CRISIS & AIRLINE INDUSTRY

Financial Crisis & Airline Industry

Financial Crisis & Airline Industry

Air transport remains an important and growing industry. Facilitating economic growth, world trade, investment and international tourism and therefore essential for globalization taking place in many other industries.

In last decade, air transport has grown by 7% per year. Travel for business and leisure purposes grew strongly throughout world. Scheduled airlines carried 1.5 million passengers last year. In leisure market, availability of large aircraft like Boeing 747 made convenient and affordable for people to travel more new and exotic destinations. Governments of developing countries realize benefits of tourism to national economies and stimulated development of resorts and infrastructure to attract tourists from prosperous countries of Western Europe and North America. As economies of developing countries grow, their own citizens are already becoming new international tourists in future.

Business travel has also increased as companies increasingly international in terms of its investments, supply and production chains and their customers. Rapid growth of world trade in goods and services and international direct investment has also contributed to growth of business travel.

Worldwide, IATA, International Air Transport Association, international air traffic forecasts will grow an average of 6.6% per year until end of decade and more than 5% per year from 2000 to 2010. These rates are similar to those of past ten years. In Europe and North America, where air transport market is already well developed, lower growth of 4% -6% is expected. Most dynamic growth centers in Asia / Pacific, where they meet rapidly growing trade and investment with rising national prosperity. Air transport in region has risen to 9% per year and is expected to continue growing rapidly, despite Asian financial crisis in 1997 and 1998 put brakes on growth for the year or two. In terms of passenger trips in total, however, main air travel markets of future will remain in and between Europe, North America and Asia.

Airline profitability "is closely linked to economic growth and trade. During first half of decade of 1990 industry was not only global recession, but trip was further depressed by Gulf War. In 1991 number of international passengers fell for first time. Financial difficulties were exacerbated by airlines excess aircraft orders in boom years of late 1980, resulting in the significant surplus capacity in market. IATA member airlines suffered cumulative net losses of $ 20.4bn in 1990 to 1994 (Steverman, 2008).

Since then, airlines have had to recognize need for the radical change to ensure their survival and prosperity. Many have tried to cut costs aggressively, to reduce growth of capacity and load factors. At the time of renewed economic growth, such actions have returned to industry as the whole to profitability: IATA airline profits were U.S. $ 5 billion in 1996, less than 2% of total revenues. This is below level of IATA believes it is necessary for airlines to reduce debt, build reserves and sustain levels of investment. In addition, many airlines are still profitable (Donnelly, ...